In today's business climate, where value and quality are paramount, Costco (COST, Financial) delivered solid Q1 FY25 results. Despite challenges like a later Thanksgiving holiday and lower gas prices impacting sales, adjusted EPS grew nearly 10% year-over-year to $3.82, surpassing analysts' expectations. However, with shares near all-time highs and trading at 54x FY25 earnings, the stock faced a high hurdle, explaining the muted market reaction.
Key Highlights:
- Comparable sales, excluding gas prices and FX changes, rose by 7.1%, slightly up from Q4's 6.9% growth. This growth was mainly driven by increased shopping frequency, up 5.1% worldwide, with strong performance in the food and sundries category.
- Non-food categories like jewelry, home furnishings, and sporting goods saw high-single-digit growth, boosting e-commerce comps by 13.2%. Costco's efforts to enhance digital capabilities are evident in increased e-commerce traffic, conversion rates, and average order value.
- Membership renewal rates slipped to 90.4% from 92.8% a year earlier, likely due to a membership fee increase and a shift towards digital renewals. Despite this, underlying renewal rates remain robust, though the shift may impact renewal rates for the rest of FY25.
The main takeaway is that Costco's strong Q1 results reinforce the positive momentum that has driven the stock up over 50% year-to-date. The company is well-positioned to be a holiday season leader as consumers prioritize value and bulk purchases, along with gift shopping.
